China’s central bank has signaled its intention to change the way it manages the yuan’s value by potentially easing its loose peg to the U.S. dollar and instead letting it track the currencies of its broader trading partners.
In an editorial posted on its website Friday night, the People’s Bank of China said the yuan’s exchange rate would be better measured against a basket of currencies rather than the dollar alone.
The foreign-exchange trading system run by the central bank for the first time published the composition of the currency basket, which comprises the dollar, euro, yen and 10 other currencies. It isn’t clear whether or when China would move away from the dollar in favor of the currency basket, which it has discussed in the past. But any change could have broad repercussions for currency markets—such as reducing China’s demand for dollars—as well as for investors and global trade. As if to underline the ‘announcement’
China's yuan tumbled further on Monday after the central bank continued guiding the currency lower, setting the yuan/dollar official midpoint at its weakest since July 2011.
Beijing's introduction of a renminbi exchange rate index - a move that will loosen the yuan's link to the greenback - further weighed on the currency. But the move has also set off selling of the yuan both within China and in what is known as Hong Kong’s offshore market amid investor expectations that a currency basket means a weaker yuan. The dollar hit another four-and-a-half-year high against the yuan on Tuesday, valued at 6.4698 yuan, after hitting one on Monday.
Meanwhile, data over the weekend showed Chinese industrial production growing at a faster-than-expected pace in November, suggesting as we have been saying for a while now that Beijing could reach its growth target of about 7% this year after many rounds of heavy stimulus.
Friday sees the release of the country’s housing index data for November and is measured by year over year change in house prices in 70 medium and large cities. The Index increased 0.1 percent year-on-year in October of 2015, the first rise since August 2014. In Beijing, prices rose 6.5 percent while in Shanghai prices went up 10.9 percent. On a monthly basis, new home prices rose 0.2 percent, the sixth straight monthly gain, signaling a slight recovery in the housing market
In Japan Confidence at large manufacturing companies held steady in the three months to December, with the Bank of Japan's Tankan survey holding at +12, but it looks like some trouble could be brewing ahead. "The deterioration, especially in manufacturers' outlook, is a bit concerning," according to Izumi Devalier, an economist at HSBC Holdings. The survey indicated companies were taking a cautious stance on the future due to general emerging market concerns and weak Japanese consumer spending.
日本方面，三个月以来大型制造企业信心稳定，日本央行的短观调查维持在+12，但前途似乎并不太平。汇丰银行经济学家Izumi Devalier 称，“恶化状况还是让人担忧的，尤其是在制造业前景上。”调查显示，由于新兴市场整体状态不容乐观，日本消费支出疲软，很多企业对未来持谨慎态度。
In the US Economic data was light last week ahead of this week’s FOMC on December 15-16. Headline growth for retail sales in November was disappointing at a meager 0.2 percent– lower gasoline prices and an inexplicable drop in motor vehicles (contrary to the gains in reported light vehicle sales) held down the headline number. Core retail sales (excluding autos, building materials, and gasoline), posted the strongest monthly gain since May, however, and are up a solid 3.5% over the past year. Still, growth in retail sales (and other consumer spending data) has been weaker than expected this year, given strong job gains and the added boost from lower energy prices.
One explanation may be that consumer confidence remains subdued amid elevated international uncertainty(both economically and geopolitically). The consumer sentiment index inched higher in the first halfofDecember, but onlysits slightly above a year-low. The data implies that consumers are pocketing extra income and energy savings rather than rushing out for sales. For instance, the personal saving rate climbed to the highest level in four years at 5.6 percent of disposable income in October. History still suggests that the buildup in savings portend spending gains ahead as long as income growth remain positive.
Yesterday ( Monday )WTI crude ended a six-day losing streak as it settled 1.9% higher at $36.31/bbl, turning higher in intraday trade after earlier falling to as low as $34.53/bbl for the first time since February 2009.however few expect the recovery to hold for long amidst a widening belief that the Saudis and sheikdoms of the oil producing Gulf are playing a very long and deadly serious game of risk. History has shown they are pretty good at it and these low prices are taking a heavy toll on credit ratings of US companies both large and small
This week Apart from Wednesday’s Fed Headlining event we have CPI .Consumer prices have hovered around a monthly change of 0 percent so far this year due largely to the sharp drop in energy prices. Analysts expect consumer prices to fall 0.2 percent for the month of November. Consumer prices excluding food and energy are expected to move up by 0.2 percent.
Industrial production has continued to spend much of the year held back due to a continued rise in the valued of the U.S. dollar along with weaker foreign demand, and is expected to fall by 0.5 percent.
And we have Housing starts which have continued to improve with demand for homes and rental units since the last recession. We expect housing starts to reach 1.13 million units (annualized) in November with a small pickup in both components – single family homes and multifamily units. The housing market index is a reflection of home builders’ expectation of new home sales and we expect it to be around 64, above the year average
The US Federal Reserve Interest Rate decision this week is possibly the biggest news on financial markets in years, but there are many who think that just like the ECB decision the news is priced in after so long . The Federal Reserve will raise interest rates but it will only be by a very small amount and given the finely balanced uncertainty in the economy at present they are quite likely to signal no further hikes at this stage. This will probably lead to an unwinding of recent USD safe haven positions and much of this will likely feedback into the Euro causing it to spike against sterling .
Any way JUST LIKE Christmas - not long to wait now
This has been Alex Heath in my last broadcast for GKFX. I would like to take this opportunity thank you all for following us over the past 18 months and for all your kind comments and suggestions.
I shall be continuing our weekly commentaries next year under the independent banner of Base Metal Solutions ltd. So for those of you who wish to remain with us you can do so at www.basemetalsolutions.co.uk
Goodbye, good luck and as ever thanks for watching.